Business Law

In re Goetz, 2022 Bankr. LEXIS 3188, 2022 WL 16857109 (Bankr. W.D. MO. November 10, 2022). 

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:


The United States Bankruptcy Court for the Western District of Missouri (“the Court”) recently ruled that non-exempt equity in a residence which appreciates in value after the petition date of a chapter 13 case but before the case is converted to chapter 7 accrues for the benefit of the estate, not the debtor, joining a slight minority of courts weighing in on the issue.  In re Goetz, 2022 Bankr. LEXIS 3188, 2022 WL 16857109 (Bankr. W.D. MO. November 10, 2022). 

To view the opinion: click here.


Machele Goetz (the debtor) filed a chapter 13 bankruptcy petition in August 2020.  The debtor owned a residence valued at $130,000 in the schedules, with a mortgage lien of $107,461 against it.  The debtor claimed a homestead exemption of $15,000.  The parties agreed that after costs of sale were factored in, there was no realizable equity for the estate if a trustee had liquidated the residence on the petition date.  In April 2022, the debtor requested conversion to chapter 7, which the Court granted.  When the debtor realized the trustee intended to market and sell the residence, she filed a motion to compel abandonment, asserting the residence was of inconsequential value to the estate under § 554 of the Bankruptcy Code. The trustee opposed, asserting that an increase in equity of $75,000 in the residence belonged to the estate and therefore the value was not inconsequential.

The Court took the matter under advisement based on stipulated facts, including that the homestead exemption remained at $15,000 and that the trustee would receive approximately $62,000 in proceeds from a sale.  The Court then ruled for the trustee in this written opinion.


In ruling on the motion to abandon, the Court recognized that if the increased equity in the residence belonged to the estate, then the value was not inconsequential.  To make that determination, it looked to § 348(f)(1)(A) of the Bankruptcy Code, which governs the scope of property of the estate in a case converted from chapter 13 to chapter 7:  “[P]roperty of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.”  Any property acquired by the debtor between those dates remains property of the debtor, not the estate.  The issue then turns on whether the increase in equity is “new” property or merely an extension of the property interests owned on the petition date.

The Court noted a dispute among bankruptcy courts, including a few appellate rulings not binding on it, on the meaning of “property” in this context, with a slight majority holding the increase in value was “new” property which remained with the debtor.  The Court looked at the plain language of the Bankruptcy Code, in particular the definition of property of the estate in § 541(a)(1), which included “all legal or equitable interest of the debtor in property as of the commencement of the case.”  It reasoned that this broad definition captured a debtor’s entire ownership interest in each asset, a conclusion supported by a decision of the Eighth Circuit Bankruptcy Appellate panel in Potter v Drewes (In re Potter), 228 B.R. 422, 424 (8th Cir. BAP 1999). 

Once the Court determined that equity was inseparable from the residence as an asset, it followed that the increase belonged to the estate.  It also found support for this conclusion in Black’s Law Dictionary and other provisions of federal law, including the Internal Revenue Code.  Finally, it saw no reason to delve into legislative history to answer the query as several other courts had done, since it found the plain language of the combined statutes (§§ 541(a)(1) and 348 (f)(1)) unambiguous.  Because the residence held meaningful value for the estate, the Court denied the abandonment motion.


I find it hard to accept that the “bundle of sticks” which constitutes a real estate asset is divisible in a bankruptcy proceeding.  Equity is part of the asset, not a “new” asset or interest.   Therefore, this ruling seems compelled by the language of §348(f)(1).  However, as noted by the Court in a closing footnote, this ruling is limited to a case converted from a chapter 13 to a chapter 7, since it relied largely on § 348(f)(1) which applies only upon such conversion.  It does not answer a related controversial issue, which is whether if a debtor sells an appreciated asset during the course of a chapter 13, that appreciation must be paid over to the chapter 13 trustee for the benefit of creditors or may be retained by the debtor.  It also does not address whether, if the amount of a homestead exemption claimed in schedule C as allowed under state law exceeded the available equity on the petition date, that fact would affect the outcome.  In other words, what if the state’s homestead exemption here had been $100,000, not $15,000, and the debtor claimed that full amount in Schedule C; would that protect the appreciation upon conversion?  To my knowledge, no precedential cases have answered those last two posed questions.  With the substantial increase in residential values nationwide in the past two years, I predict we will see bankruptcy courts (and hopefully appellate courts) tussling with the answers soon.

This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group of the Business Law Section of the California Lawyers Association. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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